Urban legend has it that if you say ‘performance appraisal’ three times in a row, your employees will all run screaming. But we can change that. Performance appraisals have been given a bad rap over the last few decades. They begin with good intentions, however, more often than not, the system is inadequate and fails to fulfill its intended purpose. Which is why many organizations over the last decade have started to revolutionize their performance appraisal system. To improve your performance appraisal system, it is important to first understand what common mistakes make the system fail, and break any assumptions tied to the mistake.
Mistake #1: Forced Ranking Approach
Assumption: Ratings are motivating and let the employee know where they stand. They also allow the organization to determine the top performers.
Reality: Giving an employee an annual or bi-annual single one-to-five rating for their overall performance gives little insight into their actual performance on different projects and tasks. An annual or bi-annual singular rating can be dissatisfying for employees because it assumes that all of their work for the year can be summarized by a singular rating, which is then used to make decisions regarding performance by the organization. In fact, the NeuroLeadership Institute found that social threats and rewards, like one’s sense of status or fairness, activates an intense reaction in the brain, which may explain why so many employees dislike receiving a singular rating for their performance. The forced ranking approach has negatives for the organization as well, and many organizations have started to remove ratings entirely. Using a forced ranking, or performance curve, often causes organizations to fit all the ratings into a bell curve and has set percentages for the allowed number of top performers and low performers. This also gives little insight into the talent within the organization and how employees are performing on a daily basis. This can lead to a mismanagement of employee performance and talent development within the organization.
Mistake #2: Using a Multi-purpose System
Assumption: One appraisal process can effectively serve several functions at the same time.
Reality: Organizations use the performance appraisal process for multiple reasons including: improvement, coaching and guidance, feedback and communication, compensation, staffing decisions and personal development, termination, and legal documentation, which is convenient, but ineffective. Often these functions trump one another and cause the entire process to fail overall. For example, when performance appraisals are tied to compensation and promotions, it usually gets in the way of coaching, feedback, and development because the employee focuses on the monetary reward.
Mistake #3: Timing
Assumption: Feedback, development, and performance improvement are annual or semi-annual events.
Reality: Employees should receive feedback on an ongoing, consistent basis. Managers should be trained to coach their employees throughout the year, and provide feedback and guidance based on the employees’ needs. This creates quality conversations between managers and employees and increases collaboration. Providing ongoing feedback also develops employees faster because they are consistently being given feedback, therefore they can consistently be improving themselves.
What to do?
Organizations can benefit by shifting from performance appraisal to performance management. They can begin to make this shift by eliminating a ratings system, and separating the goals of the performance appraisal to ensure each process is successful on its own without hindering the other. Lastly, encouraging a culture of consistent and ongoing feedback will provide improvement for both the employee and the organization.
Caroline, with her Master's in I/O Psychology, has a passion for improving the workplace to enable employees to thrive and succeed. Her strong background in analytics and research, and her unique skill for understanding people and complex organizational issues, is what attracts Caroline to the world of consulting.